Thread: Hated bank bailout is about to turn a profit

Hated bank bailout is about to turn a profit

Updated 16h 42m ago |

A year and a half ago, had someone said that by early 2011 the bank bailout would be on target to make a profit, the laughter would have been audible. Had he or she gone on to say that the unemployment rate would be 9%, it would have become deafening.

But here we are. The Treasury Department now estimates that the $245 billion that bought shares in banks is likely to return a profit in the range of $20 billion. An additional $165 billion that went to non-bank institutions, or was used more generally to encourage lending, might yet keep the overall effort from turning a profit. But don't count on it. Each report on these programs seems to get progressively better.

Even more eye-catching are the economic numbers. The unemployment rate topped out at 10.1% in late 2009. That's remarkable. The biggest economic crisis since the Great Depression apparently won't produce an unemployment rate as high as the 10.8% mark hit during a garden-variety recession in 1982. It's also remarkable that the unemployment rate has already fallen to 9%, even if it might still rise.

The unavoidable fact is that the bailout, aka the TARP (for Troubled Asset Relief Program) has been an astonishing success, and its once-noisy critics are suddenly silent, as well they should be. Combined with a number of actions taken by the Federal Reserve, the bailout —distasteful as it was —kept the economy from falling into depression.

Let's give some credit where credit is due. Start with former president George W. Bush. While his lax regulatory policies invited the crisis, at the moment of need he got TARP through Congress against the wishes of many in his party and his own ideological inclination. Much as President Obama likes to talk about how he inherited an economy in free fall, Bush had opened a parachute that made a soft landing much more likely.

Another crowd-pleaser deserving a shout-out is Nancy Pelosi, then the House speaker. She could have abandoned Bush and taken her party off on a partisan hissy fit. She didn't. Fed Chairman Ben Bernanke, of course, deserves even more hosannas, not just for championing the TARP but also for a continuing series of actions that kept the economy liquid. Ditto Treasury Secretary Tim Geithner, then the Fed's point person on dealing with failing banks. And credit belongs as well to a number of lawmakers, some of whom have since lost their seats for making a hard choice.

The critics fall into to two groups: the "naysayers" and the "yes-buts." The former sold the public on the notion that the TARP was the worst thing since the bubonic plague, all evidence to the contrary.

The yes-buts acknowledge the phenomenal recovery of banks, credit markets and the economy. Even so, they argue TARP left a ticking bomb that will blow up in an even bigger crisis.

This second group makes a valid case. The bailout does raise issues of what will happen the next time a megabank — called in the trade parlance "too big to fail" — starts to teeter. But these issues are hardly new to the bailout. They have been debated for decades, and the need for action was immediate.

Last year, for the first time since the Depression, Congress took a stab at addressing the too-big-to-fail concern. It passed a law that tries to do for failing megabanks what the FDIC routinely does with smaller institutions — shut them down in a swift and orderly way. The naysayers responded by opposing this as well, apparently taking their cue from the old Groucho Marx song Whatever it is, I'm against it!

Some of the yes-buts aren't thrilled with it either because no one is sure the new law will work as advertised.

What is certain is that the bailout has widely exceeded expectations. In addition to major banks, most of which have paid back the government at a profit, many of the so-called basket case companies are doing well. The auto bailout, arguably the least necessary part of the plan, might not break even. But the losses will be far less than expected.

Amazingly, the government has already made a $22 billion profit, a least on paper, from AIG, the insurance giant that was supposedly an $85 billion black hole. The company has paid back its loans, and Treasury says it will break even if it can unload its massive stake in AIG common stock at an average price of $28.72 per share. AIG closed Tuesday at $42.37.

With successes like these, one wonders why so many people still believe that TARP was a bad thing. An obvious reason is that they instinctively hate the notion of helping fat-cat bankers who did colossally stupid things with other people's money for their own benefit. Who doesn't? But there was no way to take them down without taking the economy down, too.

So there's a small slice of lemon being served along with the champagne. All the same, a toast is in order. Good news shouldn't be so hard to take.

http://www.usatoday.com/news/opinion/ed ... 9_ST_N.htm

Amazingly, the government has already made a $22 billion profit, a least on paper

And that is all it will ever be since we are trillions of dollars in debt and a lot of that to a COMMUNIST NATION.